Teaching Children About Money.

Updated on
November 02, 2009

M.H.
asks from
San Mateo, CA
on October 28, 2009

17
answers

For the first three years of our marriage we lived way outside our means. When we found ourselves $45,000 in debt three years ago we were pretty shocked by the whole thing. We had convinced ourselves that available credit was our right. We signed up for credit counseling (not settlement or any other kind of scam) and paid off 1/48 of the debt each month with interest. 3 months ago my husband's employer was acquired by a major software company. Needless to say it was a start-up gone right and there was a comfortable payout. We paid off the remInder of our debt, our car, and a tax bill for a few hundred dollars, and put aside a good chunk of money for vacation next year and a start of a house fund. Now our monthly income is slightly higher, our bills are greatly reduced, and we are saving for the kids' college funds and and retirement.

We clearly have more money than before and our 6 year old seems to recognize the change. While we should probably continue to budget like we did for three years, it's been nice to replace the well used things that we couldn't replace for so long. If we are at Target and buy new pillows or a new electric skillet for the house, we will buy a new toy for the kids. We went to Disneyland and didn't really pay attention to price. Now the kids just expect something every time we go somewhere!

I don't want them to grow up with this expection of having everything wonderful. We have kept our 7 year old car because it works just fine and it's paid off. We still buy clothes at Target and Old Navy. It's just that I need to find a balance between spending out of control and budgeting like the world is going to end. It's a hard balance because I grew up super poor.

Well, in the last few days our oldest has been asking about how much money we have. My husband told her it was private. I pulled two twenties, a five, and three ones out of my pocket and said, "you tell me. How much do I have?" She has a piggy bank that she counts over and over. I'll lend her money if I know she can pay me back when we get home. She doesn't have an official allowance. Sometimes I'll give her $1 for being extra helpful or cleaning up after her sister. Should I have a set allowance? I've heard of people doing tax and charity out of allowance. Does anyone have any tips or advice in this area? If it matters she's gifted and works very well with numbers. We can sometimes discourage her from buying one item by reminding her that she really wanted a different item that costs a bit more, but will take longer to get.

We don't do allowances, but they earn activities or rewards (age 6 & 1). They don't donate $$ but we donate items.

Good luck!

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C.A.

answers from
San Francisco
on
October 29, 2009

Balance is the key. Teaching about money can be really fun b/c you are instilling values and concepts- like trusting and the payoff that comes from diligence and hard work, also gratitude and sharing.
I don't know what is the right or best way but I know that I am not a big allowance person but I do want my daughter (now 7) to contribute to the housework and I give her incentives by paying her for chores. We keep track of what she does and she gets paid weekly. It is a chance to practice math skills as well.
It goes like this. Empty the dish rack, feed the cat,water the potted plants, put books on shelf and toys away- all chores equal 10 cents. There are a lot of chores she will be lazy about but some weeks seh is diligent and earns more. I also offer bonus rounds when it is really important to me to have the help immediately- empty dish rack w/in next 3 mins and you can get 25 cents!!! It works for us. ALso, no media till chores are done and reading is done.

Honestly, probably the very best thing to teach a child about money is to wash their hands after they handle it!!!

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M.P.

answers from
Sacramento
on
October 29, 2009

We just love Dave Ramsey's books and website ~ we have paid off five credit cards and two cars in five years following the Total Money Makeover. He has A LOT of great advice to give regarding kids and finances from the toddler years thru college. Good luck and this is a great thing you're looking into!

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S.L.

This is a great site. We got the book and the piggy banks and had our children read it and we discussed it. It talks about saving, gifting, investing and spending and teaches them how and why. The book comes with a CD for younger kids to listen. Our 7 year old and 12 year old "got it."

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H.D.

answers from
San Francisco
on
October 29, 2009

There is a simple rule that if you can teach it to your kids they will appreciate for a lifetime! 1/3, 1/3, 1/3. What does that mean? It means when you get money of any sort be willing to break it down by thirds. 1/3 you can spend NOW, any way you want. 1/3 goes into a short term savings, your short term piggy bank (have two banks if it helps). With that money you can buy something less immediate but worth saving for like a Barbie or Pokemon cards (yea, I don't know what little boys like these days :P). The last 1/3 is for long term savings. Maybe they want a bike or to take the family to the movies where THEY pay, or something else equally awesome.
This teaches them that they can have instant gratification but there is also benefit in the long term savings.

My two oldest daughters apply this to their lives at 24 (married) and 22 (engaged)... I am SO proud of them! The oldest had saved a great deal of money and was able to pitch in when she got married. They have NO debts! The 22 year old works as a waitress and her fiance as a waiter. They apply the thirds rule to everything. Even on a servers salary they are able to afford their own apartment, pay for furniture and college! They even put their "short term" money towards their "anniversary" trip every year. They also have NO debt.

I believe at about 8 years old children are old enough to go with you to the bank and open a savings account in their name. You can make it a goal..."when you have $50 we will open your OWN bank account!". Tell them that whenever they get $10, $20, whatever amount you designate, you will take that money and deposit it. Teach them how to keep a savings log.
Teaching them good money habits early will definitely save them heartache later, as well as building confidence. =)
I hope that helps...

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N.M.

answers from
San Francisco
on
November 02, 2009

We started giving our children allowances a few years ago when they were 4 and 6 (they're now 6 and 8). It's been one of the BEST things! They've not only learned how to count money, but how to make choices and appreciate things. I don't buy them toys any more (just at Christmas and birthdays). If they see something at the store that they want, they check how much they need to save to get it. I don't hear any whining any more because they know I'm just going to ask them, "so how much do you need to save for that?"

We did not connect the allowance to chores--they do chores because they are part of the family. But for extra big jobs around the house, they might earn extra money, by arrangement. And they take care of sorting cans and bottles and get to split the recycling money.

At the start I told them that the purpose of the allowance was to teach them to be wise with their money and make choices. Just like how mom and dad have to choose whether to buy food and gas or a new tv. We talk about how mom and dad pay bills for the house and how important it is to know how to use your money well so you don't end up with a new video game but no food.

Here's the way we do it at our house:
Each week they get half of their age as allowance. So the 6 year old gets $3 and the 8 year old gets $4. Out of that (I have it figured out for them and they get correct change), they put 10% in their charity (tithe) bank, 50% in their savings bank, and 40% in their spending wallet. I make them wait until their savings bank has $10 before they take it to the store. They can choose a worthy cause for their charity money (we give ours to our church).

So each week my 6 year old has $1.20 in her wallet to spend. It doesn't sound like much, but it's enough to buy something from the dollar aisle, or to save to buy something a bit bigger the next week. (After two years she is now finally able to keep it from burning a hole in her pocket!) The idea is to have an incentive to save. There is no good reason that they should have enough to buy a new big toy each week, and they wouldn't appreciate it either. But the things they have saved and waited for--those they value as special.

The allowance has turned out better than when I just gave them dollars here and there. With an allowance, they know what to expect and can plan how to get what they want.

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R.W.

answers from
San Francisco
on
October 29, 2009

Congratulations on your change of fortunes!
It sounds like you are doing great with your daughter.
Six is young for an allowance, but since she is gifted, an allowance is a great idea that she should be able to learn from.
Just keep doing what you are doing--emphasizing NEED (the old car is doing fine) and FAMILY TIME (family vacations create memories and strengthen bonds) as your priorities, as opposed to "stuff".
And keep saving, in case your fortunes change again! ;-)

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D.S.

answers from
San Francisco
on
October 29, 2009

Greetings M.: I have 5 children. We have never given allowances because we are all part of the family and all have to contribute to it's growth and progression.
That said, when a child had a special need or deired something we gave then the chance to earn the money and found ways that they could earn money from others. But they had to ean it not just have it handed to them.
When my husband became ill, all income went right out the door, as I was needed to care for him. We have gone from a really comfortable financial place to living on Social Security death benifits. BIG CHANGE.
My children learned how to deal with all the changes by careful budgeting and knowing the differance between wants and needs. As adults they have all been able to continue with the budgeting for needs and making clear choices for wants and needs. Which has helped them as they have lost jobs. Or married someone that did not have those skills. You are blessed right now and have been more fortunet than many to have improved your life. Prepare for the future and yes, the fact that it can all change in a heartbeat. Good Luck, Nana G

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K.D.

answers from
Stockton
on
October 29, 2009

We have a rule that our kids do not get anything unless they get it for a holiday or pay for it themselves. You might have a couple of tantrums the first couple of times going to the store, but it will be worth it in the long run. My girls are 12 & 16 and take very good care of their things. They know if it gets lost or broken they are going to have to wait until Xmas or their birthday to ask for a new one. I love allowances. We ask that each kid save half in their bank account and they are allowed to spend half.

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L.D.

answers from
Modesto
on
October 29, 2009

Just because you buy something for the household doesn't mean your children need a toy or gift. If they want something,tell them to put it on their b-day or holiday wish list(whichever is coming up next). Children do not need to leave each shopping trip with a reward. I tell my kids presents are for special occasions. There is debate over whether allowance should be for chores or not. SOme say that chores are chores and you participate in the household - period. No reward for it. This way they learn to eventually run their own household. SOme say that chores should be rewarded. PErsonally I feel that there are main chores that are just a fact of life and need no reward (like dishes, clean bedrooms, garbage out etc-age appropiate of course) and if they go above and beyond what you have set for regular chores(perhaps rake the yard, wash the car) these could earn an allowance. There are plenty of good books about there regarding saving and managing the money they do receive. One idea I have heard is that you require them to divide their money into thirds. One third for charity, one third for savings, one third for personal spending. Another thought is to ask them to donate time/services to a local charity, soup kitchen, hospital(when older), childrens center or whatever. Each year they can choose a different venue or stick with the same one if they like it. Community service is a resource our society needs to renew in our children. Glad to hear you are doing well in this recession when so many are not. Be thankful.

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T.K.

answers from
Sacramento
on
October 30, 2009

Hi. As far as allowance goes, I always give my kids, even my 3 year old, allowance based on what they have done to earn it. My main goals are to teach them the value of hard work for earning money, helping out around the house, and that earning the money is based on how well one does the job, not just that they did it. May seem harsh but it's simpler than it reads.
Examples:
-finding trash such as lint on the floor and throwing it away (after they have shown me how many they picked up) earns a penny for each one
-cleaning the kitchen table after a meal earns a dime. everyone already clears their own stuff, so the child would wipe it down and then clean it with a cleaner (we use nontoxic natural stuff, I think it's Green Mountain or something from the Co-op), and giving it one more wipe down
-taking out one small bag of trash earns a nickel

See, I know that these increments are really small, but these are children, and in order for them not to get spoiled I feel that I have to start small. When they get older, and the work they do is tougher, they will get paid more, just like starting at the bottom at a new job, climbing up the ladder and getting a raise. Everybody these days talks about how we have to get the children of today ready for their adult lives as if those days start tomorrow. Like the schools treat children like little adults. They are not even given the chance to be kids and have an appropriate length of time for recess or free choice activities. Then they have homework that can take up to two hours a night. Where is our family time? Where is our relax time? Society today leaves no time for that. My view is, if my children are in school all day, they need no homework, and life is their lesson's reinforcement. If they choose to do chores and earn money so they can feel powerful, have higher self esteem about doing something on their own, have control over what they choose to buy with their own hard earned money, then they are ready to start learning about responsibility. But if they choose not to do the chores and earn the money, then they are not ready for more responsibility and don't have to buy themselves anything. This doesn't mean that I will buy stuff for them whenever they ask. I am a penny pincher because I have to be. My children already have so much stuff it's like I could run a preschool in my house!

I know I wrote a lot, and I can write so much more. But I'm pretty sure you got the picture!

Hope you find your answers!

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Z.M.

answers from
San Francisco
on
October 29, 2009

Ji M.,
I would reccomend the book 'first national book of dad'-- I forget the author-- if you want to go into this in more detail. In general, I think allowance is a good idea, and, to encourage saving, you might consider starting a 401k system with 'matching' for your child. You can also just be the bank and offer a high rate of interest (like 10%) so your children get in the habit of saving.

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S.S.

answers from
Sacramento
on
October 29, 2009

Awesome job on getting out of debt! I agree with several moms. If our kids want something, have them put it on their wish list for birthday/Christmas or they need to buy it themselves. If you want to start an allowance, that is up to you. She may be ready for it. One of my friends started it with her 4 year old (now 5) and he gets saves up and buys his own toys. He gets $5 a week for chores that he is expected to do. If his parents end up doing it, he doesn't get all the $5. He's managed to purchase some expensive Lego sets by saving up. He also does the $1 for charity, $1 for tax, $1 for savings, and $2 for spending.

I'm planning to wait until my 5 year old is older since I feel that she doesn't need an allowance yet. She does earn a little bit of money, such as identifying coins and how much they are worth. We don't buy toys unless it is for a special occasion. It also helps to cut down on the too many toys in the house! : )

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D.R.

answers from
Bakersfield
on
October 29, 2009

It is so nice to hear that someone in this time of life has been able to clear up debt. You are very fortunate and I can tell you know it. However, it is still important to keep a tight reign upon your finances for your family--and you are the one that can do it. Your children will need college money and you need retirement, plus to donate a certain portion is a plus. My daughter-in-law was raised in a very formal home, but her mother had a great idea that impressed me very much. She set up an allowance for each child say $10.00 a month and they had to keep a ledger to say what each penny was spent on--receipts if possible. Now my daughter-in-law is a great money manager. As far as spending money in front of your children sometimes if you have children that love to shop with you tell them at times you are just going window shopping so you can see what you might want to buy later. Take them to lunch or go to a park and have a picknick and just say you are out for a fun time. It doesn't always have to be about money--it is a plus as you know, but learn to have ways to have fun without it. Good luck in life.
D.

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J.M.

answers from
Fresno
on
October 29, 2009

Wow! Good for you for getting out of Debt! You teach your children about money everyday. They see the way you live and the things you buy and what you value. You also need to talk to them about how a person has to earn money. and save part of it, buy only what they can afford and give some to help others. You can give a small allowance and if your child wants a toy she can have it when she has saved enough to buy the toy. Then the money is gone till she saves up more. Kids will always ask for things thats normal. and getting a gift now and then is fine. Learning about money is a life long journey. Even as adults we are learning new lessons everyday
J.

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D.T.

answers from
San Francisco
on
October 29, 2009

I've read about parents giving their children 3 piggy banks. (This is how Rockefeller budgeted!) One is for stuff they want now. One if for long term savings for something bigger -OR just to save - and one is charity. They can choose the % of their money to go into each. Usually the charity one is 10%. It is similar to tithing for religious families. Your child can choose a charity - children, the environment, save the whales, or something really close to home. Then they decide how much to put in the NOW bank and the SAVE bank.

I am going to give my son an allowance when he's old enough, for going above and beyond chores he should help out with in our household. As part of the family I feel that children need to feel a place of usefulness and contribution. They may complain - but it is important to feel like a contributing member of the family. I would tell my child, when he's old enough to understand how much we make and sit him down and go over the bills so they can understand how much needs to go out. It's private outside the family. Not to be discussed with friends. But children are part of the family. I believe in including them.

Good luck. And YAY for you and your children for child led weaning and natural parenting!

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C.G.

answers from
San Francisco
on
October 29, 2009

Hello M.,

Congratulations on getting out of debt, and getting into a stronger financial position for your family.

We started giving my 7 year old son a $10 allowance this year. We started the allowance strictly to teach him how to manage money. He is required to give at least 10% and save at least 10% that goes to the local bank. The rest he can spend how he pleases, however, I require that he tell me what he wants to purchase, and I will take him to the store to purchase that item only. He is not allowed to browse the stores looking for something to buy. Every purchase is made on purpose. The additional things he likes to ask me for, maybe fast food, or some toy, I'll tell him he needs to buy it with his own money, and often he rethinks the request.

I don't let him leave the house with his wallet, because its normally full of cash.

I plan to add long term investing, since he already understands earning money by placing his money in an institutional savings.

I think its great that you want to teach your children about managing money. I think a lot of us would be a lot better off if our parents took the time to teach us!